Tips in Business Transaction:
A Moral Issue
ABSTRACT. Has one the right to expect favor because he or
she has given tip? Or is one obligated to bend the rule of law
in favor of his friend from whom he has received tip or
favor?
The paper undertakes an analysis of the different tip
situations, the different forms of tip and attempts to show in
what sense the term tip is applicable and finally examines
the usefulness of tip and its possible effect on a moral
conscience.
The paper argues that tip considered as a transaction
wherein money or favor is offered for the purpose of gaining
an advantage illegally is nothing but bribery and as such
immoral. Tip as a "forced gratuity" is argued to be an
organized exploitation. The paper then concludes that tip in
its proper sense of voluntary and gratuitous transaction can
maximize individual utility and enhance social solidarity,
noting at the same time, that its possible adverse effect on
the moral conscience is worth taking cognizance of.
Tips, a human transaction invoMng a "donor" and a
"donee" or "recipient", are so common that what
they really are and their moral status is rarely
discussed or questioned. The result is that tip givers
and recipients have little or no idea of the moral
implications of their action. A cab driver in Wash-
ington, D.C. once told me that he does not stop to
carry certain classes of people because they do not
give tips. Jokingly, I put these questions to him,
"What is the relationship between tip, the taxi fare
that you are entitled to, and the services that you
render? What right do you have to penalize people
for not giving tips? Are the passengers obligated
to give tips?" Neither the cab driver nor I had
S. Iniobong Udoidem is Lecturer at the Department of Philosophy at
University of Port Harcourt. He has written severalarticleswhich
have been published in Prtsence Africaine and The Review
of Metaphysics.
Journal of Business Ethics 6 (1987) 613-618.
~) 1987 by D. Reidel Publishing Company.
Iniobong Udoidem,Ph.D.
immediate answers to these questions. I then put the
question to myself, which I now intend to discuss in
this paper, "What is the moral status of a tip as a
human transaction?" In the discussion, consideration
will be given to the analysis of the different tip
situations and the different forms of tip. Tips will
then be examined in relation to the individual
participants and the social context. And finally, issues
will be raised concerning the influence of tips on the
moral conscience. Hopefully, the discussion will help
clarify or at least raise consciousness concerning the
perplexing problem of tips in human or business
transactions.
Tip situations
The dialogue between Socrates and Crito in one of
Plato's dialogues, concerning the rightness and
wrongness of the jailer's action in letting Crito into
the prison cell prior to visiting hours raises an
interesting philosophical issue regarding the moral-
ity of tips. Crito argues that the jailer owed him the
right of passage into the cell to see Socrates because
he (Crito) had given him (Jailer) a tip) This brief
dialogue raises the question of the status of what we
call in our daily conversation a tip. Is a tip something
that one gets or receives for doing a service to the
other? Or is it something that one receives in order
that he -will perform a service afterwards? On the
part of the giver, is a tip given as a reward for service
received or a fee paid for a service to be received
later?
In our daily conversations and discussions, we do
not normally raise these questions or make distinc-
tions between the status of tips in relation to givers
and receivers. Tips have come to be accepted as a
way of life of a "civilized" society. Whenever one
614 Iniobong Udoidem
goes to any restaurant or hotel, the reality of tips is
brought to one's consciousness. In some restaurants
or business transactions, a tip is pre-calculated and
included in the bill, while in certain situations, it is
left to the free will and generosity of the customer.
But, while this practice is accepted as normal, its
effect on the moral sense of the participants is un-
discussed. For example, if one is a regular customer
at a particular restaurant, and the waiters and
waitresses know him as a customer who does not
give tips, then you can be sure that he will receive
low grade treatment. But if on the other hand, he is
noted as a customer who is generous with tips, then
thank heavens, there will be many mansions for him
in his favorite restaurant. One can therefore under-
stand Crito's argument that the jailer knows him
(probably as one who gives tips), that he (Crito)
comes to the prison often and that he is in the habit
of giving tips to the jailer and therefore the jailer is
obligated to let him in.
The role of the tip here becomes morally ques-
tionable, especially when one notes that it was not
yet the official hour for entry when the jailer
allowed Crito to enter. If a tip is a reward given or
received for a service performed, then it could be
seen as desert and could perhaps be argued to be
morally defensible. But if it is a reward given or
received for a service that is yet to be done, and its
receipt or non-receipt becomes a determining factor
in the quality of the service that is to be adminis-
tered, then the tip becomes morally questionable.
Before we proceed, it might be useful to give the
structure of what is meant by a tip context in
contemporary business relations. In many business
transactions, the network of relations is triadic,
namely:
(A) Management (Employer),
(t3) Employee,
(C) Customer(Consumer).
In this situation, there is a contract or exchange
relationship between A and B. In so far as B is the
employee of A, B is obligated to perform the duties
for which he or she was employed, and as long as
those duties are performed, A is obligated to pay B
for his or her services. There is also a contract or
exchange relationship between A and C. For exam-
ple, let A be the management of a restaurant or hotel
and suppose C is the customer that requires the
services of A. A is obligated to provide the services
for which C is billed and C is obligated to pay A for
the services rendered.
The curious situation is whether there is any
contract or exchange relationship between C and B,
that is customer and employee. It is certain that
while B may not have a direct contract or obligation
to C, he (t3) fulfills his obligations to A by rendering
the appropriate services to C. It would seem that
there is no legally constituted exchange relationship
between B and C. However, there is an "open
exchange" relationship which I characterized as a
"tip situation". Out of the generosity of C, in
appreciation of the good services rendered by B, C
gives a tip to B and B accepts, and a relationship
is established. Another "tip situation" could be a
transaction that involves the imparting of useful
information for the purpose of gaining advantage in
investment or information about the stock market.
Or it might even take the form of what Harold
L. Johnson describes as "Lubricants" for business
channels, where "underpaid employees supplement
their salaries with grease to keep the gears of
business moving." 2
Having thus indicated the various tip situations,
our next concern is to raise the question of the effect
of tips on the moral conscience of participants. Has
one the right to expect favor because he has given a
tip? Or is one obligated to bend the rule of law in
favor of his friend from whom he has received tips
or favor? The claim of this paper is that the practice
of offering and accepting tips has some unsung
ramifications on the moral conscience of the partici-
pants whether in international or domestic business
relations. An analysis of some of these ramifications
will be the subject of the next section. But before
examining the implications, effects and ramifications
of tips, it is worthwhile first to discuss the different
forms or types of tips.
T i p as b r i b e r y
The practices of tipping and bribing seem to be twin
sisters, since they both involve giving and receiving
of something because of an actual or perceived favor.
However, from the moral standpoint one of them
seems to be more abhored and grievous than the
 Tips in Business Transaction
other. Both tip and bribery will be examined to see
how they are related and how a tip could be a bribe.
Bribery may be defined as an act of illegally
giving money, favor or promise to a person (or
persons) in a position of trust to influence his or her
judgment or conduct. Putting it differently, it is any
transaction that serves to induce or influence an
action from its just course and directing it to one's
advantage. It takes on many fanciful expressions such
as "kick-backs" or "grease" for keeping the gears of
business moving. Though abhorred in all cultures
and seen as an impediment to progress and honest
business transaction, business men themselves have
found it to be an unavoidable "sin". As Henry Lane
and Donald Simpson have noted, refusal to par-
ticipate means losing contracts and failure in busi-
ness, and participation on the other hand means
moral degeneration and loss of a sense of value. 3 But
a tip generally is not equated with a bribe or bribery.
How then is a tip related to bribery?
A tip, considered as a transaction wherein money
or favor is offered for the purpose of gaining an
advantage illegally is nothing but a bribe. The tip
case cited of Crito in Plato's dialogue was an outright
bribe which perhaps was acted out in the text to
en-force the moral character of Socrates as one who
preached against bribery and corruption in Athens.
The practice of"pay-offs" and "kick-backs" to secure
contracts and business deals though often classified
as tips are nothing but acts of bribery? If a tip is
different and distinct from bribery, what then is a
tip?
Tip as f o r c e d g r a t u i t y
In a recent nationwide television show, Judge
Wapner of the California Peoples' Court had a case
titled "the case of the forced gratuity". In the case,
the plaintiff A was a limousine service dealer. The
defendant B entered into contract for limousine
service with A. A had told B that all service charges
would be forty dollars ($40.00) to which B agreed.
But after the service had been rendered, B dis-
covered on the itemized bill that the actual cost of
the service was thirty-five dollars ($35.00) and the
remaining five dollars ($5.00) was a tip which A who
was also the driver of the limousine, had calculated
and added to the bill without the consent or prior
knowledge of the customer. When B discovered this
615
intended forced gratuity, he ordered a stop payment
on the cheque he had issued for A. The plaintiff (A)
then went to the Peoples' Court to sue for forty
dollars ($40.00), claiming that the defendant had
agreed to pay the said amount for the limousine
service. The defendant argued that when he agreed
to pay forty dollars ($40.00), he did not know that a
forced gratuity was involved. He argued that the
plaintiff should have told him about the actual cost
of service, and that the tip should have been or is a
gratuituous transaction and not something that is
forced on the customer. He offered to pay thirty-five
dollars ($35.00), the actual cost of the service. But
Judge Wapner ruled in favor of the plaintiff arguing
that the plaintiff has the right to itemize his charges
as he likes, that since the defendant had agreed to
pay the charge that was quoted for him, he should
honor the contract and pay the said forty dollars
($40.00) irrespective of how the plaintiff itemized the
bill.
The question that concerns us here is not Judge
Wapner's verdict but the morality of a forced
gratuity or tip. Had the defendant the right to know
of the tip prior to the contract? In the case of forced
gratuity as with the case at hand, and other such
transactions, what is the difference between the
service charge and the tip charged? Perhaps the
service charge could be reasoned to be a form of tip,
if a tip were defined as an exchange for service
rendered. If this were the case, it would be redun-
dant and superfluous to have the different distinc-
tions and itemizations on the bill. Why couldn't
there be just one bill, namely, the service charge? For
example, if the Limousine service man had made the
service charge to be forty dollars ($40.00) if that is
what he wanted, it should have been understandable.
The issue of tip should have been left to the
generosity of his customer. He would have had
nothing to lose whether his customer gave him a
tip or not. But to have premeditatively charged for
a tip without the pre-knowledge and possibly the
consent of his customer, makes the transaction
morally questionable. It seems that it involves a
denial of a form of knowledge that is due to the
customer in any honest business transaction. As
Jacques P. Thiroux has noted, honesty and truth-
fulness in the provision of necessary information
that is due the customer about a particular product
or service is a mark of a morally sound business
616
relation, s But even if the customer were informed
about the inclusion of the tip-charge in the bill, has
the management or producer any right to demand
tips from a customer? The customer, because of his
need of the service or product, is forced to give a tip.
Such a transaction, which is not in anyway different
from the formally constituted service charge, ceases
to be gratuituous but becomes an organized rip-off
and a fertile ground for the cultivation of bribery.
However, since one is described as a service
charge and the other as a tip, it follows somehow
that there must be a difference between the two.
While the one is described as the service exchange,
the other should be regarded and treated as a
gramituous gesture.
T i p as e x c h a n g e o r g r a t u i t u o u s gift
Exchange could be defined as "the giving up of
something in return for receiving something else,"6
or any "vice-versa movement" between or among
individuals. 7 This exchange transaction may occur
either in a "specialized ~' sense or in a "nonspecialized"
sense. The specialized exchange is the product of
division of labor and takes the structure of trade by
barter or exchange of productions. Marshall Sahlins
has given an example of such a transaction of the
Tami Islanders who make wooden bowls, the south-
ern villagers who make pottery, the Busana who
are large food producers, and each exchanges its
specialty with the others. 8 The "nonspecialized"
exchange according to Ian Macneil would take the
form of "any vice-versa movement among people
not resulting from specialization of labor."9 He cites
the example of the giving of a present, say a pig
to a kinsman with the understanding that at some
appropriate occasion in the future a pig will be
returned. Such exchanges he argues would remain
unspecialized if the understanding was that the
kinsman could return at his option either a pig or
some other commodity of roughly the same scale of
value, l° Kristen Hawkes also notes that a nonspe-
cialized exchange may occur when similar tasks are
shared, for example, when people pair off to do each
other[s haying?'
Exchange, therefore, whether "specialized" or
"nonspecialized", has one common characteristic,
that is, it involves some kind of reciprocity that
Iniobong Udoidem
directly affects the participants. For example, in a
transaction involving the cab driver and the pas-
senger, the medium of exchange is the taxi fare and
the service rendered, or in the case of a restaurant
situation, the medium of exchange is between the
bill paid and the services rendered.
A tip transaction, unless understood as money or
something given for a direct service rendered or to
be rendered, ceases to be an exchange transaction in
the way explained by both Macneil and Sahlins. As
already argued, if a tip is understood as a formal
exchange for a good or service rendered, then it is
not different from other bills or institutionalized
fares.
It would seem then that there is a different way of
viewing tips which makes them a form of exchange
but not in the popular sense. The difference is that a
true tip does not involve immediate reciprocity at
least to one of the parties. For example, when one, in
addition to paying his bill at the restaurant or in
addition to paying his cab fare gives a tip to the
waiter or cab driver, such a gesture is a gratuituous
act, "a surplus exchange" stemming from the donors
perception of the recipient as being in need of extra
economic assistance. Neither party will view the
transaction as being materially wasteful but as
economically advantageous. A tip therefore in this
context and in its true sense is a unidirectional
transaction, where the element of material exchange
is donative. Its function is the enhancement of social
solidarity and the maximization of individual utility.
Tip, social solidarity and individual utility
A tip here is understood as a gratuimous unidirec-
tional gift. The position of this paper is that in every
gift situation, whether unidirectional oi reciprocal,
there is always a dimension of enhanced social
solidarity and increased individual utility. However,
since it had earlier been remarked that a tip as a
reciprocal transaction is conflicting with other forms
of exchange relationships, the discussion here will be
limited to a unidirectional tip transaction.
When a person gives a tip as a reward for a
perceived good service received, the probable inten-
tion is to re-enforce a behavior of good service, such
that even if the donor may not come that way again,
the recipient may always persist in good services to
 Tips in Business Transaction
every customer or larger community. This type of
transaction can enhance social solidarity. It is an
undemanding form of transaction which by its
nature neglects the obligations of reciprocity nor-
mally found in other forms of exchange transaction.
It enhances good behavior for future transactions
with other customers. Another intention is to con-
tribute to the maximization of individual utility. In
relation to the recipient, the transaction improves
his or her economic situation. But in relation to the
donor, although there is no direct exchange or
reciprocal relationship, he finds such "exchange
surplus" deals useful in that they give him a sense
of self-fulfillment as a generous person, and the
transaction accords him reputation, prestige and
power.
Tip and the moral conscience
It must also be examined here whether a tip has
any adverse moral effect on the conscience of the
participants. For example, if the recipient feels that
the donor has not given him or her a commensur-
able tip for services rendered, the tendency is to be
suspicious towards other customers and he may not
render good services since he lives with the con-
sciousness that he had been cheated in previous
transactions. In a sense, one could argue that a tip
dehumanizes the recipient and makes him live only
in the world of transactions with material exchanges.
There exists a constant tension and psychological
warfare between the customer and the recipient.
What if the donor had no more than just what he
tipped? What if he had no more but just enough to
pay for the "bill of exchange"? Has he any obligation
to apologize or explain to the potential recipient why
he is unable to give a tip? Can he be considered as
owing the recipient in the future? What if the
recipient refuses to render proper services to the
customer during another business encounter? Was
the recipient really cheated by not being given a tip?
Has he (the recipient) any justification to retaliate
by an attitudinal response? What effect will this
"transaction tension" have on the whole business
enterprise? These are some of the questions that are
crucial to responding to the issue of the moral status
of tips.
The last of the issues raised above is worth further
617
consideration. The situation here is that which could
be characterized as the "tension of motives". The
waiter at the restaurant, for example, renders services
with the hope of getting tips (individual utility), the
management of the business is interested in making
a profit. Even though a tip has been argued to be a
gratuituous gift - with no obligations, its influence
or effect is enormous. When there are no tips, the
quality of service could be adversely affected. Where
the quality of service is below standard, customers
diminish in number, no profit is realized in business.
Where therefore, the self-interest of the employees
varies with that of the management, there is tension
of motives. On the part of the customer or donor, it
is either a sense of guilt or rejection. On the part of
the employee or potential tip recipient, it is apathy
and a negative attitude to duty.
By way of curbing this tension, some institutions
and business managers have institutionalized tips
and pre-calculate them in the bill. This arrangement
raises the problem of "forced gratuity" and as already
argued, it makes customers pay more than the value
of the service or product received. Managers often
argue that the pre-calculated tip gives incentive to
employees, giving them a feeling or sense of being
cared about by management. But couldn't the
incentive be given through a raise in pay? Could
it be that the management recognizes that the
employees are underpaid and therefore it introduces
tips for the augmentation of low wages? Whichever
way it is viewed, it seems reasonable to remark
that managements exploit employees and rip-off
customers by institutionalizing tips. In other words,
organized or institutionalized tips are instruments of
exploitation.
Conclusions
It must be admitted that the essay is a mere
questioning exercise. A beach combing on the shores
of a wide ocean of a multifaceted moral issue. Yet an
examination of the pebbles and shells collected,
namely, the questions raised, may be of value for
future reflection on the subject of the moral status of
tips. The paper has so far examined the different tip
situations, the different forms of tips and attempts t.o
show precisely in what sense the term "tip" is
618
applicable, and finally examines the usefulness of tips
and their effects on the moral conscience.
The paper then concludes that tips considered as
transactions wherein money or favor is offered for
the purpose of gaining an advantage illegally, is
nothing but bribery and as such is immoral. A tip
as "forced gratuity" is argued to be an organized
exploitation and therefore morally questionable. A
tip is then argued to be a form of exchange that is
gratuituous, unidirectional, and devoid of direct
reciprocation. Such transactions the paper has argued
are capable of enhancing individual utility as well as
social solidarity. The paper finally admits that
despite the advantages that tips in their proper sense
have, their possible adverse effects on the moral
conscience of the participants is worth taking note
of.
Notes
1 Socrates: I wonder that the jailer was willing to let you in.
Crito: He knows me now, Socrates, I come here so often, and
besides, I have given him a tip. (Crito, 43b, Church's
Translation).
2 Harold L. Johnson, 'Bribery in International Markets:
Diagnosis, Clarification and Remedy', Journal of Business
Ethics 4, 1985, p. 448.
Iniobong Udoidem
3 Henry W. Lane and Donald G. Simpson, 'Bribery in
International Business: Whose Problem Is It', Journal of
BusinessEthics 3, 1984, pp. 35-42.
4 For further discussion on bribery see Harold Johnson,
'Bribery in International Markets: Diagnosis, Clarification,
and Remedy', Journal of Business Ethics 4, 1985, pp, 447--455;
'Bribes and Business', WallStreetJournal, August 2, 1979, p. 1;
Berry Richman, 'Stopping Making Payments Under the
Table'. Business Week, May 22, 1978, p. 18; Neil H. Jacoby,
Bribery and Extortion in World Business, Macmillan Publica-
tions, New York, 1977.
5 Jacques P. Thiroux, Ethics: Theory and Practice, Macmillan
Publishing, New York, 1985, pp. 328-338.
lan R. Macneil, 'Exchange Revisited', Ethics 96, No. 3,
1986, p. 567.
7 Marshall Sahlins, Stone Age Economics, London, Tavistock,
1974, p. 567.
8 Ibid.,pp. 285--291.
9 Ian Macneil. Ethics 96, p. 571.
lo Ibid.
~ Kristen Hawkes, 'Cooperation in Binumarien: Evidence
of Sahlins Model', Mau, n.s. 12 (1977), pp. 459--483.
Department of Philosophy,
University of Port Harcourt,
P.M.B. 5323,
Port Harcourt,
Nigeria.